Week-In-Review: Stocks End Bumpy Week Lower
The market ended a bumpy week mostly lower as the number of Covid-19 cases surged, and the Fed released the results of its big bank stress test. It was disconcerting to see the number of Covid-19 cases spike as the economy tried to slowly reopen. The market does not know if the spike is due to the reopening or all the protests we saw in recent weeks across the country. If it is the latter that is a good thing because that means we can reopen without having a huge spike. If it is the former, then we will probably be forced to shut down again and that’s why stocks fell so much last week. Turning to the Fed, the report showed that the big banks may suffer unexpected losses on some of the outstanding loans. That prompted the Fed to tell the big banks not to issue dividends or buy back shares for the next few months. That sent stocks lower on Friday. Stepping back, the major indices are pulling back to important support which is the 50 DMA line. The bulls want to see that level hold. If not, we will likely continue to fall as we head into earnings season over the next few weeks.
Thursday & Friday Action:
Stocks rallied on Thursday after regulators decided to ease the Volcker Rule on banks and the bulls showed up and defended the 50 DMA line for many of the lagging areas. Remember, we are headed into the last few days of the month and quarter which tends to have an upward bias. On Friday, the market fell as the number of Covid-19 cases surged and the Fed released the results of its stress test on the big banks. The Fed said the banks can’t issue dividends or buy back stock for the next few months.
Market Outlook: Flood The System With Liquidity
Global governments and global central banks stepped in with massive rate cuts and other “aid” packages to help “stimulate” both Main Street and Wall Street. So far, it is working as intended. As long as March’s lows hold, the market will likely move sideways to higher. On the other hand, if March’s lows are breached, then look out below. As always, keep your losses small and never argue with the tape.